GOOD AND BAD ECONOMIC NEWS YOU MAY NOT HAVE HEARD

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

The mainstream media continue to downplay extraordinarily positive economic news, not to mention the successes of the policies of the Biden Administration and congressional Democrats. In case you didn’t hear this, the number of Americans needing unemployment benefits fell to a 52-year low, i.e., the lowest number since March 1970. The unemployment rate is quite low at 4.0% and employers added 467,000 jobs in January. The estimates of job growth in November and December were revised upward by a combined 709,000 jobs. (Note: In the Boston Globe, this great economic news was not presented until page 6 of the second section and only warranted a short article, written by the Associated Press, that was about half of one column in length.) [1]

Employers added a record 6.4 million jobs in 2021, in good part due to actions of Democrats and the Biden Administration. Spending authorized by the American Rescue Plan Act (ARPA), which was passed in March, boosted economic activity. Vaccination programs and other steps to control Covid allowed businesses to reopen and workers to go back to work.

Economic growth for all of 2021 was 5.7%; the highest since 1984. This continues the historical pattern over the last 100 years of the economy performing better under Democratic Presidents than under Republican ones. (See this previous post for more details.)

There are two pieces of bad news from recent economic data. One is that consumer prices are increasing; more on that below. The other is that while unemployment is down overall, unemployment is higher and falling more slowly for non-White workers than for White workers. This is especially true for Black women. As-of the end of 2021, unemployment rates and their declines since October were as follows: [2]

White workers: 2% unemployed (down 20%)
Asian American workers: 8% unemployed (down 11%)
Latino / Hispanic workers: 9% unemployed (down 14%)
Black workers: 1% unemployed (down 9%)

Consumer prices have increased 7.5% over the last year; the highest rate since 1982. Although Covid-related supply chain problems and growing consumer demand are responsible in part, growing attention is focusing on price gouging by large corporations. The extreme capitalism that our policies have allowed to flourish over the last 40 years has resulted in a dramatic decrease in competition in many industries and markets. (See this previous post for more details.) The lack of competition and monopolistic control of markets has allowed huge corporations in many industries to raise prices and increase profits more than a competitive market would allow (i.e., to engage in price gouging [3]). This has been evident in the prices of gasoline, food, and many consumer products due to large, monopolistic corporations in everything from trans-oceanic shipping to oil and gasoline production to food production.

Analysis of car prices shows that dealers are engaging in price gouging in the face of growing demand and limited supply. Manufacturers’ prices to dealers for new cars are up only 2% over a year ago but consumers are paying 12% more than they did a year ago. Edmunds, a car-shopping research company, found that 82% of consumers paid more than the manufacturers’ suggested retail price (MSRP) in January 2022, compared with just 3% in 2021 and almost no one in 2020. Profits for large car dealer networks have, not surprisingly, skyrocketed. [4] Prices for used cars and trucks are up 40.5% from a year ago. This is another indication that car dealers are price gouging. [5]

The Federal Trade Commission is investigating the market behavior of the large oil and gas corporations. [6] Gasoline prices in January (i.e., before the Ukraine war) had jumped 40% over a year earlier to $3.49 a gallon from $2.49. Natural gas prices were almost four times what they were a year ago. Costs are not driving these price increases; the oil and gas corporations are taking advantage of the pandemic to increase profits by price gouging.

The Federal Maritime Commission is examining the large shipping corporations for price gouging. There are three alliances of nine trans-oceanic shippers that transport 80% of all seaborne cargo (up from 40% in 1998). The price of transporting a standard shipping container from China to the U.S. has increased from about $2,000 before the pandemic to $20,000 last August and roughly $14,000 in January. The shippers’ profits in 2020 were around $25 billion; it’s estimated that their profits were 12 times as much, $300 billion, in 2021. This is a clear indication that the increases in shipping prices are price gouging. [7]

As a final example, the handful of huge slaughterhouses and meatpackers that control the market for beef, poultry, and pork have tripled their profit margins during the pandemic. The Justice Department is investigating them for price fixing. The four biggest meatpacking corporations (Cargill, JBS, Tyson Foods, and National Beef Packing Co.) control over 70% of the market for beef. The price of beef is up 16% over the last year, significantly higher than the already high rate of increase of 7.5% for food in general. Cattle ranchers filed an anti-trust lawsuit against the four big meatpacking corporations in 2019; food retailers and wholesalers sued them in 2020. Ranchers now receive only 39% of the retail price of beef; down from 45% in 2017. JBS previously paid $52.5 million to settle a lawsuit over beef price fixing. [8] Again, these are clear signs that the increases in meat prices are price gouging.

[1] Ott, M., 2/25/22, “Jobless aid numbers now lowest since 1970,” The Boston Globe from the Associated Press

[2] Broady, K., & Barr, A., 2/11/22, “December’s jobs report reveals a growing racial employment gap, especially for Black women,” Brookings (https://www.brookings.edu/blog/the-avenue/2022/01/11/decembers-jobs-report-reveals-a-growing-racial-employment-gap-especially-for-black-women/

[3] Price gouging refers to when businesses take advantage of spikes in demand or shortages of supply and charge exorbitant prices for necessities, often after a natural disaster or another type of emergency.

[4] Elizalde, R., 2/23/22, “Car prices are above MSRP because of price gouging rather than inflation,” Forbes (https://www.forbes.com/sites/raulelizalde/2022/02/23/car-prices-above-msrp-reflect-price-gouging-rather-than-inflation/?sh=61d09cabb60a)

[5] Shen, M., 2/13/22, “Used cars cost 40.5% more than last year as gas prices rise. New car prices also climbing,” USA Today

[6] Tankersley, J., & Rappeport, A., 12/25/21, “As prices rise, President Biden turns to antitrust enforcers,” The Boston Globe from the New York Times

[7] Khafagy, A., 2/2/22, “The hidden costs of containerization,” The American Prospect (https://prospect.org/economy/hidden-costs-of-containerization/)

[8] Puzzanghera, J., 2/19/22, “Why are beef prices so high? Some ranchers and White House say it’s more than just inflation,” The Boston Globe

SUPPORTING CHILDREN AND FAMILIES: SOMETHING EVERY DEMOCRAT OUGHT TO BE CAMPAIGNING ON NOW

Democrats in Congress and the Biden Administration enacted a nearly universal Child Tax Credit as part of the American Rescue Plan Act (ARPA) in March 2021. It provided almost every family in America with $3,600 annually for each child under age 6 and $3,000 for each child age 6 and up. Importantly, the credit was paid on a monthly basis rather than having to wait until one filed a tax return at the end of the year to get the money. In effect, it provided a universal basic monthly income for families with kids, something most wealthy countries do. [1]

The effect of this enhanced Child Tax Credit was dramatic – the child poverty rate declined by almost half. However, ARPA authorized these payments for only one year. Many politicians and policy analysts thought that the program would prove so effective and so popular that it would be extended. This is what was proposed by the Biden Administration and most Democrats in Congress as part of the Build Back Better bill.

Last summer, as the Build Back Better (BBB) bill was taking shape, the debate between Democratic progressives and centrists was whether to make the enhanced Child Tax Credit permanent or just extend it for five years. But then, Senators Joe Manchin and Kyrsten Sinema went rogue. They claimed they were concerned about the budgetary impact, but voted for an increased defense budget many times more expensive. They claimed that families were benefiting from it that didn’t need it or deserve it. I’ll come back to these arguments below.

Now, the question is whether any form of the enhanced Child Tax Credit will survive in whatever the Build Back Better bill becomes.

Longstanding research shows substantial benefits for child outcomes from family economic support. This research was bolstered very recently by a research paper published in the prestigious Proceedings of the National Academy of Sciences. In a randomized control trial, the most definitive kind of scientific study (the same approach as is used for testing new drugs), monthly cash support of $4,000 per year given to poor mothers with infants was found to result in changes in the infant’s brain activity that are associated with better development of important cognitive skills. [2]

Despite the strong body of research that documents that economic support for families improves children’s cognitive, school success, and life success outcomes, the Republicans and a few Democrats in Congress let the enhanced Child Tax Credit expire in January. As a result, 3.7 million more children are now in families living in poverty. The overall child poverty rate increased from 12.1% to 17.0% (a 41% increase in the poverty rate) and the impact on non-White children was greater:

White children in poverty increased from 7.5% to 11.4% (+3.9%)
Black children in poverty increased from 19.5% to 25.4% (+5.9%)
Latino children in poverty increased from 16.8% to 23.9% (+7.1%)
Asian children in poverty increased from 11.9% to 15.1% (+3.2%) [3]

The Child Tax Credit is a potent anti-poverty program. It is also extremely efficient. There are no middlemen, no application hassles, and no bureaucracy required to determine who’s eligible and who’s not; the government just provides money to all families with children, the same way it provides money to all seniors through Social Security. And the benefits are taxable, so higher income families who have less need for the money pay some of it back in income tax.

Senator Manchin has said he might support an enhanced Child Tax Credit if it had strict income limits or a work requirement. This would make it an inefficient, counter-productive policy because it requires a large bureaucratic effort to determine who is eligible and who isn’t, and mistakes will undoubtedly occur. It creates complexity and confusion because parents’ work status and income can change, often frequently for low-income workers and those in part-time jobs. Furthermore, it creates what are called “cliff effects” where as a parent’s earned income increases, they fall off the eligibility cliff and lose benefits. This creates a perverse incentive for low-income workers to refuse increases in pay or hours, or even to refuse a new job, because this might reduce their eligibility for benefits from the Child Tax Credit.

It would also make the Child Tax Credit less politically popular because middle-class parents wouldn’t get it. This reduced political support means that it will be more likely to be cut or eliminated in the future.

The Child Tax Credit is an issue that exposes the hypocrisy of many Republicans and some conservative Democrats. They claim they support family values and a right to life (as well as to liberty and the pursuit of happiness), but don’t support the enhanced Child Tax Credit that supports families and improves a child’s likelihood of leading a successful and fulfilling life.

I urge you to contact President Biden and your U.S. Representative and Senators to let them know that you support the enhanced Child Tax Credit, which would provide economic support to over 36 million families and over 61 million children. Tell them that this is what family values really are all about and that this is what a right to a life is all about for children in America.

You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414.

You can find contact information for your U.S. Representative at http://www.house.gov/representatives/find/ and for your U.S. Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1] Kuttner, R., 2/18/22, “Save the Child Tax Credit,” The American Prospect blog (https://prospect.org/blogs/tap/save-the-child-tax-credit/)

[2] Troller-Renfree, S. V., et al., 2/1/22, “The impact of a poverty reduction intervention on infant brain activity,” Proceedings of the National Academy of Sciences (https://www.pnas.org/content/119/5/e2115649119)

[3] Center on Poverty and Social Policy, 2/17/22, “3.7 million more children in poverty in Jan 2022 without monthly Child Tax Credit,” Columbia University (https://www.povertycenter.columbia.edu/news-internal/monthly-poverty-january-2022)

MEDICARE PRIVATIZATION CAN’T BE FIXED; IT MUST BE ELIMINATED

The private health insurers in America have been working for decades to privatize Medicare, our public health insurance for all seniors, so they can profit from this large public funding stream. If we want to improve quality and control costs in our health care system, the privatization of Medicare must be stopped and rolled back. This and two other posts summarize:

The history and background of Medicare and efforts to privatize it (this previous post),
The unsuccessful efforts to control the costs and improve the quality of the privatized Medicare Advantage plans (this previous post), and
What needs to happen to save Medicare (this post). [1]

Theoretically, the problems of cost, quality, and access to health care services that arise with the privatized Medicare Advantage (MA) and Direct Contracting (DC) programs can be fixed with technical changes in laws and regulations. However, these approaches have been tried in the past without success. Some of the practices the MA and DC companies use to increase their revenues and profits are illegal. The Department of Justice has filed lawsuits against large MA providers for their “upcoding” gamesmanship to get more revenue per enrollee (see this previous post for more details). However, even lawsuits are unlikely to solve this problem permanently. And it won’t solve the gaming of the Medicare payment system in other ways.

The lengths the MA insurers will go to protect their profits was underscored by their active opposition to improving Medicare by adding hearing, vision, and dental benefits as was proposed by the Build Back Better Act. Recognizing that a more level field of competition from an improved public Medicare program was a threat to their profits, they engaged in a multi-million-dollar public relations campaign against the enhanced Medicare benefits. Despite the private sector’s rhetoric about believing in competition, in health care (as elsewhere) private providers do NOT want competition from the public sector on an even playing field. This is evident here with MA insurers and it was evident in the development of the Affordable Care Act (ACA) when private health insurers opposed and killed the inclusion of a public, Medicare-like option among the subsidized health insurance alternatives in the ACA marketplaces.

Both the MA insurers and the new DC entities are private companies that will pursue profits relentlessly. They can be constrained only by government regulation, which is extremely difficult if not impossible to implement effectively. Moreover, doing so would be costly and therefore inefficient. These corporations are timeless and soulless legal entities that have shown through past behavior that their only commitment is to maximizing profits. The MA insurers have shown time after time that they will find ways around government regulations or ways to game the regulations for their profit.

The delivery of key societal services, such as health care, by the public sector, i.e., government, is not only fairer and more compassionate than delivery by the private sector, it is also more efficient, effective, and streamlined. The private sector’s profit motive adds costs (i.e., profits, advertising, and administrative overhead) and incentivizes cost-cutting, often through denying needed services and cutting corners on quality. Furthermore, the private sector has no incentive to address inequality, bias, or discrimination; its only goal is to maximize profits.

To reverse the scourge that Medicare privatization has clearly become, and that is exacerbated by Direct Contracting, we need to assert strong public control over Medicare. This can and should be done by changing or reversing past policy decisions.

The privatization of Medicare is an example of the extreme capitalism that has come to dominate the U.S. economy. Bob Kuttner wrote about this in his powerful and poignant article analyzing the history of capitalism in our democracy. [2] (I summarized his article in this previous post.) This hyper-capitalism, as he calls it, includes the privatization and/or deregulation of important public services and public goods, including health care and health insurance.

Based on historical experience, Kuttner concludes that nothing short of full public control will stop the private sector’s relentless drive to capture – and profit from – Medicare spending. This large, public funding stream, currently $800 billion and projected to double by 2028 as more baby boomers become Medicare-eligible, is seen by private sector capitalists as a tremendous, irresistible profit opportunity.

Kuttner notes that without strong and effective public constraints capitalism evolves into an extreme form (which he calls hyper-capitalism) that serves wealthy individuals (i.e., plutocrats) and large corporations but leaves everyone else behind. This is antithetical to the ideals and principles on which our democracy was founded – equal opportunity for all, including the ability to realistically pursue happiness and a good life through access to health care and true freedom to make important life choices, such as where to live and work. These ideals and principles, as well as the public goods and basic societal functions that effectuate them, can only be ensured by an assertive government of, by, and for the people, not one that’s controlled by the plutocrats and wealthy corporations for their benefit.

A first step for saving Medicare is to eliminate the Direct Contracting privatization option created by the Trump Administration. Over 50 Democratic members of Congress, along with Physicians for a National Health Program (a membership organization of 24,000 doctors and other health professionals), are calling on the Biden Administration to eliminate the Direct Contracting Medicare privatization program. A majority of the 53 current Direct Contracting companies are investor owned (i.e., owned by private equity or hedge fund vulture capitalists not by a health insurer or a healthy services provider). They are allowed to spend as little as 60% of their Medicare payments on patient care with the rest going to profits and overhead. So far, the Biden Administration has only paused the most extreme form of DC, while letting the other DC pilot programs proceed, despite questions over their legality. [3] [4]

I urge you to contact President Biden and ask him to eliminate the Direct Contracting Medicare privatization scheme. You can also let him know that you support reducing and eventually eliminating other Medicare privatization, while strengthening the public Medicare program. You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414.

I also urge you to contact your U.S. Representative and Senators to let them know that you support elimination of the Direct Contracting Medicare privatization scheme. You can also let them know that you support reducing and eliminating Medicare privatization, while strengthening the public Medicare program. You can find contact information for your U.S. Representative at http://www.house.gov/representatives/find/ and for your U.S. Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1] Caress, B., 1/24/22, “The dark history of Medicare privatization,” The American Prospect (https://prospect.org/health/dark-history-of-medicare-privatization/)

[2] Kuttner, R., 12/1/21, “Capitalism vs. liberty,” The American Prospect (https://prospect.org/politics/capitalism-vs-liberty/)

[3] Johnson, J., 2/3/22, “Warren warns, ‘Corporate vultures’ circling Medicare on Biden’s watch,” Common Dreams (https://www.commondreams.org/news/2022/02/03/warren-warns-corporate-vultures-are-circling-medicare-bidens-watch)

[4] Johnson, J., 2/16/22, “Physicians slam industry push to ‘fix’ – not end – Medicare privatization scheme,” Common Dreams (https://www.commondreams.org/news/2022/02/16/physicians-slam-industry-push-fix-not-end-medicare-privatization-scheme)

LACK OF ETHICS AT THE SUPREME COURT AND IN THE FEDERAL JUDICIARY

There’s a lack of ethics at the U.S. Supreme Court, both in terms of the justices themselves and in the Chief Justice’s oversight of the federal judiciary. Unlike every other member of state and federal judiciaries, the Supreme Court’s nine justices aren’t subject to ethics rules or a code of conduct, not even the ones that govern the rest of the federal judiciary. Requests for them to subject themselves to those rules have fallen on deaf ears and efforts in Congress to impose ethical standards have gone nowhere.

The 1978 Ethics in Government Act, passed in the aftermath of President Nixon’s Watergate scandal, does require the justices to file annual disclosure statements of their and family members’ financial interests. Nonetheless, Justice Thomas had to amend 20 years of disclosure statements to indicate that his wife had received hundreds of thousands of dollars of income from the Heritage Foundation, a conservative think tank. He has repeatedly been criticized for not recusing himself in cases where he appeared to have a conflict of interest based on his wife’s financial interests. [1]

There also have been issues with conflicts of interest due to justices’ ownership of stock in corporations with business before the court. For example, in 2016, Chief Justice Roberts had two instances of such conflicts. In a case involving Microsoft, he disclosed well after that fact that he had sold over $250,000 of Microsoft stock in the year prior to hearing the case. He also participated in a case involving Texas Instruments while owning over $100,000 worth of company stock. He admitted after the fact that he should have recused himself on that case.

At least four current justices have book deals worth hundreds of thousands, if not millions, of dollars. Federal employment guidelines say that justices can’t accept more than $30,000 annually in outside pay. However, book income is exempt, but, nonetheless, it has potential conflicts of interest.

Nearly every justice has been questioned at one point or another on ethical issues such as appearing at partisan events or fundraisers, or accepting travel packages or other gifts. Justice Gorsuch just gave a speech at the annual conference of the politically active, powerful, conservative legal group, the Federalist Society. His speech was the only part of the conference program that was closed to the media. Without a code of conduct that indicates what’s appropriate and what isn’t, it’s up to each individual justice’s discretion (or lack thereof).

For the rest of the federal judiciary, the Chief Justice of the Supreme Court, John Roberts, has responsibility for overseeing its ethical standards and practices. Despite numerous examples of federal judges with conflicts of interest, in his year-end report on the federal judiciary Roberts argues for “institutional independence” and for the “Judiciary’s power to manage its internal affairs”. [2]

However, the evidence indicates that Chief Justice Roberts and the federal judiciary are NOT doing a good job of managing their internal affairs. In September, the Wall Street Journal reported that between 2010 and 2018, 131 federal judges improperly heard cases involving corporations where they or family members were shareholders. This is, of course, a violation of the conflict-of-interest rules for federal judges. Subsequent to the Wall Street Journal’s reporting, 136 judges have, after the fact, informed parties in 777 cases that they should have recused themselves because of a conflict of interest.

In response to these and other revelations, members of Congress have expressed interest in:

Making all federal judges’ financial disclosure statements public (as they are for elected officials) so that conflicts of interest would be apparent,
Imposing a code of conduct on the Supreme Court justices,
Updating judicial ethics rules and disclosure requirements for all federal judges, including ones governing gifts, such as travel packages, and
Imposing civil sanctions on judges who fail to recuse themselves when the judicial code of conduct requires them to do so.

The Roberts report’s only acknowledgement of the conflict-of-interest problems among federal judges is a statement that judicial ethics training programs need to be more rigorous. It also asserts that inappropriate behavior in the judicial workplace (presumably referring to multiple reports of sexual harassment and misconduct) can be addressed with expanded guidance and training.

Given the evidence of a variety of ethical problems at the Supreme Court and in the federal judiciary, Roberts’ call for judicial independence and autonomy sounds like an effort to avoid the standards, accountability, and transparency that would be put in place by a code of conduct for the Supreme Court Justices and by an enhanced code of conduct for the rest of the federal judiciary.

[1] O’Brien, T. L., 5/2/21, “Supreme Court’s ethics problems are bigger than Coney Barrett,” Bloomberg (https://www.bloomberg.com/opinion/articles/2021-05-02/supreme-court-s-ethics-problems-are-bigger-than-coney-barrett)

[2] Mystal, E., 1/24/22, “Roberts gets an F on his annual report,” The Nation (https://www.thenation.com/article/society/john-roberts-report/)

PRIVATIZED MEDICARE CAN’T BE CONTROLLED

For decades, the private health insurers in America have, step by step, been privatizing Medicare, our public health insurance for all seniors, in order to make profits off this large public funding stream. Not surprisingly, they made dramatic new inroads during the Trump administration.

If we want to improve quality and control costs in our health care system for seniors, the privatization of Medicare must be stopped and rolled back. This and two other posts will summarize:

The history and background of Medicare and efforts to privatize it (a previous post),
The unsuccessful efforts to control the costs and improve the quality of the privatized Medicare Advantage plans (this post), and
What Medicare needs to do to fix what’s wrong, control runaway costs, and improve quality. [1]

Over the last 30 years, multiple efforts have attempted to control the costs of the privatized Medicare Advantage (MA) plans and to protect MA enrollees’ access to health care services (i.e., to reduce unwarranted denials of services or payments). However, the MA insurance companies always seem to find a way to dodge or get around new laws or regulations with these goals. Sometimes they block or weaken them before they’re ever enacted (e.g., through lobbying and campaign spending). Sometimes they alter their practices to skirt and undermine them.

When the privatized Medicare Advantage plans came into existence in 1985 (see my previous post for more details), reimbursement rates for MA plans were set at 95% of what seniors cost Medicare because the private insurers claimed they would be more efficient than the public Medicare program and would save Medicare money. However, MA insurance companies ended up spending 6% more per enrollee than Medicare, so they lobbied for and got higher and higher payments from Medicare. Instead of saving Medicare money, they cost it more and more. In 1997, the Clinton Administration’s Balanced Budget Act cut the excessive payments to MA plans and stopped the MA insurers from creaming-the-crop by enrolling healthier-than-average (i.e., less expensive) seniors. However, in 1999 and 2000, the MA companies got Congress to weaken these initiatives and then, under the pro-privatization George W. Bush Administration, they actually got increases in their payments from Medicare. The Obama Administration, as part of the Affordable Care Act (ACA) in 2010, tried again to cut excessive payments to MA insurers. The ACA cut about $14 billion from MA plans’ excess costs by limiting them to only 1% more per enrollee than traditional, public Medicare costs. In response, an extensive and expensive ad and media campaign was initiated by the MA health insurers and Republicans claiming that Obama and the ACA were hurting seniors by cutting Medicare – a campaign you may well remember. As a result, two years later, under tremendous pressure, the Obama Administration backed off and instead of cutting MA rates by 2.3% to move toward the targeted savings, it increased them by 3.3%

The private Medicare Advantage insurers have been successful time after time in overcoming Medicare’s efforts to control their excessive costs. They are so big and profitable that they can spend the money needed to stymie Medicare’s efforts by engaging in campaign spending, lobbying, and advertising. Any time there is an effort to cut their funding, they run a massive media and lobbying campaign saying that the government is trying to cut spending on Medicare. This scares seniors and legislators into opposing efforts to make MA more cost effective. [2]

The private Medicare Advantage insurers also find innovative (and sometimes fraudulent) ways to dodge cost controls and increase their revenue. A major one is claiming that their enrollees are sicker than they actually are because the payments they receive are greater for sicker seniors. Codes indicating the presence of diseases and negative health conditions are added to enrollees’ records even if the MA provider is providing no treatment or services for those ailments. It is estimated that in 2019 this “upcoding” (as it is referred to) cost Medicare $9 billion. [3]

Another way that the private Medicare Advantage insurers are gaming Medicare is through its five-star quality rating program that provides bonuses to MA plans with high ratings. The original purpose of the quality rating program was to help seniors pick high quality plans. When the program was initiated in 2009, 15% of plans got 4 or 4.5 stars and none got 5 stars. Today, 86% of plans are rated at 4 or 5 stars and, therefore, get about $6 billion in quality bonuses. Yet research finds that MA plan quality has not improved. The only thing that has improved is the MA insurers’ ability to game the system to get billions in bonus payments.

When the pro-privatization Trump Administration came into power, it created a program to fully privatize Medicare called Direct Contracting. Some experts have described it as Medicare Advantage on steroids. For example, one of the three Direct Contracting models would allow all seniors in designated geographic areas to be enrolled in a privatized Direct Contracting health care plan with no right to opt out. In addition, for the first time, Direct Contracting would allow investor-controlled firms – as opposed to firms controlled by health service providers – to provide Medicare services. This would turn over the delivery of Medicare’s health care services to private investors like hedge fund and private equity vulture capitalists whose only goal is to make money. [4]

In a recent 18-month period, private investors spent $50 billion buying Medicare Advantage insurers and these new Direct Contracting firms because of the opportunities they see to make large profits. These deals value the purchased firms at an average of $87,000 for each senior they estimate they will enroll. This is indicative of the level of profit investors believe can be generated from Medicare payments to these firms. [5]

My next post will describe what Medicare needs to do to fix what’s wrong, control runaway costs, and improve quality.

[1] Caress, B., 1/24/22, “The dark history of Medicare privatization,” The American Prospect (https://prospect.org/health/dark-history-of-medicare-privatization/)

[2] Caress, B., 1/24/22, see above

[3] Gilfillan, R., & Berwick, D., 9/29/21, “Medicare Advantage, Direct Contracting, and the Medicare ‘money machine,’ Part 1: The risk-score game,” Health Affairs (https://www.healthaffairs.org/do/10.1377/forefront.20210927.6239/full/)

[4] Gilfillan, R., & Berwick, D., 9/30/21, “Medicare Advantage, Direct Contracting, and the Medicare ‘money machine,’ Part 2: Building on the ACO model,” Health Affairs (https://www.healthaffairs.org/do/10.1377/forefront.20210928.795755/full/)

[5] Gilfillan, R., & Berwick, D., 9/29/21, see above

THE ECONOMY PERFORMS BETTER UNDER DEMOCRATIC PRESIDENTS

I’ve written before about the fact that the economy has historically performed better under Democratic Presidents than under Republicans. With the economy booming under President Biden, this pattern is both being confirmed and extended, and it’s receiving some attention. For example, Heather Cox Richardson, an historian, wrote the following in her Feb. 5, 2022, blog post (my bolding):

“The economy has boomed under President Joe Biden, putting the lie to the old trope that Democrats don’t manage the economy as well as Republicans.

This should not come as a surprise to anyone. The economy has performed better under Democrats than Republicans since at least World War II. CNN Business reports that since 1945, the Standard & Poor’s 500—a market index of 500 leading U.S. publicly traded companies—has averaged an annual gain of 11.2% during years when Democrats controlled the White House, and a 6.9% average gain under Republicans. In the same time period, gross domestic product grew by an average of 4.1% under Democrats, 2.5% under Republicans. Job growth, too, is significantly stronger under Democrats than Republicans.

“[T]here has been a stark pattern in the United States for nearly a century,” wrote David Leonhardt of the New York Times last year, “The economy has grown significantly faster under Democratic presidents than Republican ones.”

The persistence of the myth that Democrats are bad for the economy is an interesting example of the endurance of political rhetoric over reality. …

In the end, … the economists Leonhardt interviewed last year think [that] behind Democrats’ ability to manage the economy better than Republicans [is the fact that] Republicans tend to cling to abstract theories about how the economy works—theories about high tariffs or tax cuts, for example, which tend to concentrate wealth upward—while Democrats are more pragmatic, willing to pay attention to facts on the ground and to historical lessons about what works and what doesn’t.”

You can read the rest of her post with its more in-depth interesting historical perspective here: https://heathercoxrichardson.substack.com/p/february-5-2022

MEDICARE IS BEING PRIVATIZED AND IT’S A RIP OFF

The private health insurers in America have been working for decades to privatize Medicare, our public health insurance for all seniors, so they can make profits off this large public funding stream. Not surprisingly, they made dramatic new inroads during the Trump administration.

If we want to improve quality and control costs in our health care system, the privatization of Medicare must be stopped and rolled back. This and two subsequent posts will summarize:

The history and background of Medicare and efforts to privatize it (this post),
The unsuccessful efforts to control the costs and improve the quality of the privatized Medicare Advantage plans, and
What Medicare needs to do to fix what’s gone wrong and to control runaway costs while improving quality. [1]

The U.S. health care system is the most expensive in the world with some of the worst outcomes. It costs nearly twice as much per person as in peer countries. It is eating up nearly $1 out of every $5 spent in the U.S. economy. Our policies (i.e., laws and regulations, or lack thereof) have allowed our private health care system to rip off consumers with high prices and poor quality for the sake of profits that enrich shareholders and executives.

The public, meanwhile, is less healthy and its economic security is at-risk, because even with insurance a major health problem is often astronomically costly. Surveys have found that of the adults who are not old enough to be eligible for Medicare roughly one in four (26% or about 52 million people) face challenges paying medical bills. Roughly 1 million individuals declare bankruptcy each year and for many of them (estimates range from 26% to 62%) medical bills are a significant – if not the driving – factor. This makes medical costs the number one cause of personal bankruptcies. [2]

Medicare was created in 1965 to provide health insurance for seniors that would pay their doctor and hospital bills. The Centers for Medicare and Medicaid Services (CMS) oversees Medicare (and Medicaid which is for low-income families and individuals) and sets the regulations for health insurance plans for seniors. Private insurance companies process the payments for health care services under a contract with CMS. The insurers get paid for services according to CMS regulations. However, the insurance companies manage the payments to health care providers and the processing and paperwork requirements.

Privatized Medicare Advantage (MA) plans were introduced in 1985 because private insurers claimed they were more efficient and, therefore, could save Medicare money and deliver better services – despite their poor performance record in the general health care market. MA plans are publicly funded, privately run, currently enroll 26 million seniors (40% of Medicare enrollees), cost $343 million a year, and are very profitable for the private insurers. Moreover, two corporations, Humana and UnitedHealthcare, are the insurers for half of all MA enrollees. As is true in so many sectors of the U.S. economy, this market has a few huge corporations with a very large portion of the market. Due to this limited competition, these huge corporations have monopolistic power (e.g., to raise prices and lower quality). This is a classic example of the hyper-capitalism that emerges when corporations aren’t strongly regulated.

The portion of Medicare that is privatized through Medicare Advantage (MA) plans is growing and has resulted in increased costs and a bewildering array of choices that often confuse and manipulate seniors – 3,834 MA plans are offered by nine different health insurance companies. This makes seniors’ health care complex, confusing, and costly, thereby undermining confidence in Medicare and in government programs in general.

Seniors buy MA plans because they typically cover services Medicare doesn’t cover (such as vision, hearing, and dental services) and/or reduce Medicare’s out-of-pocket costs (e.g., deductibles and co-pays). To cover their overhead and make a profit, MA plans aggressively control costs by requiring enrollees to only use in-network providers and to get prior approval for many services, especially expensive ones.

MA plans deny 4% of requests for prior approval of health care services and 8% of requests for payments for services that have been delivered. There is an appeal process but few people use it. When they do, the denials are reversed 75% of the time. Denying coverage for health care services not only saves the MA plans money, it also tends to drive seniors who have serious and expensive health issues off their MA plan and back onto traditional Medicare. This is a creaming-the-crop technique that leaves healthier, less expensive (and more profitable) seniors in MA plans and shifts the less healthy, more expensive seniors onto the public Medicare program. As a result, MA plans spend 10% to 25% less per enrollee than traditional Medicare does for comparable enrollees.

Nonetheless, over the 12 years from 2009 to 2021, Medicare paid MA private insurance companies $140 billion more than it would have spent if those seniors had stayed in traditional, public Medicare. (A further explanation of how this happens is in my next post.) MA plan insurance companies made a gross profit of $2,256 per enrollee in 2020 (which is more than double what they make on non-senior enrollees in the general health care market).

The bottom line is that the partial privatization of Medicare through Medicare Advantage plans has not saved Medicare money as promised (quite the opposite) and it has not produced better outcomes for seniors.

My next post will summarize the unsuccessful efforts to control the costs and improve the quality of the privatized Medicare Advantage plans. A subsequent post will describe what Medicare needs to do to fix what’s gone wrong and to control runaway costs while improving quality.

[1] Caress, B., 1/24/22, “The dark history of Medicare privatization,” The American Prospect (https://prospect.org/health/dark-history-of-medicare-privatization/)

[2] Amadeo, K., 1/20/22, “Medical bankruptcy and the economy,” The Balance (https://www.thebalance.com/medical-bankruptcy-statistics-4154729)